Trump’s World Liberty Financial secures $75 million loan using illiquid WLFI tokens as a significant token release approaches.

World Liberty Financial, the decentralized finance initiative co-founded by the Trump family, is rapidly gearing up to release a substantial portion of its WLFI tokens following a nearly two-year holding period.

The forthcoming release is expected to focus on a segment of the remaining 80% of public investors’ allocations to the project. Data from Tokenomist indicates that this amounts to over 16 billion WLFI tokens, valued at approximately $1.28 billion.

WLFI’s Token Unlock (Source: Tokenomist)

While the project’s leadership presents this action as a long-awaited benefit for early supporters, crypto analysts and retail investors are accusing the team of utilizing the unlock as a distraction from an escalating liquidity crisis and dubious on-chain lending practices.

The choice to release the remaining 80% of investor allocations comes shortly after early investors initiated lawsuits against the protocol.

This decision also coincides with the project facing significant scrutiny regarding a large, highly concentrated borrowing position on the DeFi lending platform Dolomite. Notably, CryptoSlate has previously reported that this position has effectively trapped millions of dollars in retail deposits.

For several months, World Liberty Financial has been involved in a continuous cycle of value extraction, leveraging its own highly illiquid governance token as collateral to secure tens of millions in stablecoins.

According to blockchain data examined by various independent researchers, the structural integrity of this debt is heavily dependent on a single, insider-controlled treasury.

Understanding WLFI’s Dolomite debt trap

The controversy revolves around how World Liberty Financial manages its treasury through Dolomite, a DeFi lending protocol. Dolomite’s co-founder Corey Caplan also acts as a technical advisor to World Liberty Financial.

On-chain tracking from Arkham Intelligence and independent DeFi researchers indicates that the WLFI team has deposited over 3 billion WLFI tokens, nominally valued at around $300 million, into Dolomite.

By using this substantial amount of their own token as collateral, the team has borrowed an estimated $75 million in stablecoins, including its proprietary USD1 and Circle’s USDC.

WLFI Team Transactions on Dolomite (Source: Arkham Intelligence)

This approach has effectively consumed the Dolomite platform. WLFI now ranks at the top of Dolomite’s supplied-assets list, accounting for over 50% of the protocol’s total value locked (TVL).

The structural issue, however, lies within Dolomite’s USD1 lending pool. USD1 currently has $180 million supplied against $167.5 million borrowed, resulting in a staggering utilization ratio of 93%.

Due to this extreme utilization, ordinary retail depositors who lent their stablecoins to the pool, expecting to withdraw freely, are now unable to access their funds. Their capital is effectively locked until the WLFI team opts to repay its substantial debt.

To attract these deposits, the pool has aggressively raised its lending rates, with yields soaring as high as 35%.

However, analysts caution that this yield reflects a liquidity crisis rather than genuine market demand.

Yashas, a well-known DeFi educator, stated:

“The 35% APR that depositors observed wasn’t driven by organic demand. It was one insider treasury consuming the entire pool… You’re earning yield you can’t withdraw on principal you can’t access. That 35% wasn’t compensation for a risk you understood. It was a price tag for a risk nobody explained to you.”

If the WLFI token, which currently suffers from extremely thin market depth, were to experience a sudden price decline, the ensuing liquidation would crash the token’s price long before the collateral could be unwound. The resulting bad debt would fall squarely on the retail depositors.

WLFI’s “trust me bro” economics

Confronted with a wave of criticism on social media, the World Liberty Financial team dismissed concerns regarding a potential liquidation cascade.

In an April 9 social media post on X, the team stated:

“We are one of the largest suppliers and borrowers on WLFI Markets. Yes, we supplied WLFI as collateral and borrowed stablecoins. No, we are nowhere near liquidation — and frankly, even if markets moved dramatically against us, we’d simply supply more collateral. That’s not a risk. That’s how this works.”

The team further defended its operations by highlighting its USD1 stablecoin, which it claims is generating a $159.5 million annual revenue run rate, and noted that it has executed $65.58 million in open-market buybacks over the past six months.

However, seasoned crypto analysts were quick to emphasize that promising to “simply supply more collateral” is a historically perilous strategy in decentralized finance.

Ethan DeFi, a digital asset analyst, described the response as “pathetic,” likening it to the catastrophic failures of previous crypto giants. According to the analyst, this is not the first instance of a team opening a massive stablecoin loan against their illiquid token.

He referenced 2024, when Curve Finance founder Michael Egorov borrowed nearly $100 million in stablecoins against his own CRV token, ultimately burdening lending protocols with bad debt when the price plummeted. Egorov repaid these debts.

Prior to that, in 2022, Sam Bankman-Fried’s bankrupt FTX borrowed significant amounts of stablecoins against its native FTT token, leaving protocols like Abracadabra Money with millions in unrecoverable debt following FTX’s collapse.

If a similar downward spiral were to occur with WLFI, the resulting bad debt on Dolomite would likely fall directly onto the retail depositors who currently cannot exit their positions.

Is WLFI distracting the market with an unlock?

Amid this backdrop of illiquidity and insider dealings, World Liberty Financial has opted to finally unlock WLFI tokens.

The public sale of WLFI raised over $590 million, with buyers acquiring the tokens at prices ranging from $0.015 to $0.05.

With the token currently trading at $0.08, this indicates that early investors are technically holding substantial, yet inaccessible, paper profits. However, their profit margins continue to diminish significantly amid the ongoing bear market, which has seen the Trump-linked asset decline by 64% over the past year.

For context, blockchain firm Bubblemaps reported that Tron founder Justin Sun, who purchased $75 million worth of WLFI and was named a project advisor, has incurred an estimated loss of $80 million as the asset’s prices have decreased.

Consequently, early investors have reportedly begun filing lawsuits against the project’s team.

In response, the protocol announced that a governance proposal to unlock the remaining tokens will be presented next week for a community vote. The team characterized it as a “structured, phased approach designed with the long-term health of the ecosystem in mind.”

However, many holders are doubtful that unlocking billions of tokens into an illiquid market will do anything but depress the price.

This suggests that the token unlocking may turn out to be a hollow victory for retail investors who bought into the Trump-branded DeFi vision.

With billions in new supply set to enter the market and a lending protocol strained under the burden of insider debt, the anticipated liquidity event may ultimately be the very factor that destabilizes the ecosystem.

The post Trump’s World Liberty Financial borrows $75M against illiquid WLFI tokens with 16B token dump incoming appeared first on CryptoSlate.